Is UK Grid Reform Really Working? - Low Carbon

For years, getting a grid connection in the UK worked a little bit like reserving a table at a restaurant. You put your name down, but you didn't have to show up. So developers booked grid capacity they didn't yet need or couldn't yet build. And when the solar and batteries became cheap, the list exploded.

Before connections reform, there was around a terawatts of projects sitting in the UK's connection queue, far more than the system ever needed. And that's the problem this episode is all about.

My guest is Ed Burkett, new projects director at Low Carbon. He spends his time trying to build real projects inside a system fighting to bring order to the queue. There are some uncomfortable side effects like solar projects losing their batteries because the planning didn't line up. Standalone projects racing ahead whilst colocated projects fall behind.

Substations filling up like multi plug adapters. Each new project requiring its own socket. The irony is that none of this is about clean energy targets. It's about order, timing, and who can get connected first.

This episode is about how the energy transition now lives or dies on details most people never see and why getting them wrong can cost billions.

I'm Ed Porter. Welcome back to transmission.

Hello, Ed. Welcome back to transmission.

Hi, Ed. Great. Thanks for having me again.

Our pleasure. And as a reminder for our listeners, who are you? Who are Low Carbon? And I wanna ask you what the feedback was like on your last episode.

Okay. Great. So I'm Ed Burkett. I work at Low Carbon, which is an independent power producer based in the UK and we're best known as one of the largest developers of large scale solar farms in the UK.

Feedback on the last episode, I would say, was generally positive and certainly been having actually a lot of industry discussions over the last years. We've been going through connections reform and trying to trying to sort out this gridlock.

Did you have that moment where you were like, I said that was gonna happen.

I said that was gonna happen on the episode and it came true.

Oh, well, I think the the main thing that we we worried about last time is is low carbon was the risk of delay and the timelines not being met. And and I think, unfortunately, we have now seen that the timeline has been pushed back across the board to to the extent now where the last grid offers now won't be coming out until the end of September this year, which is, you know, nearly a year delayed from what the the original timeline was.

Okay. Super. And we've gone like straight into the detail there. So let's let's take a step back and let's remind listeners of connections reform. So if ever just kind of paint the picture, so we have had a world where for a long time things didn't change very much in energy, they changed a little bit but by and large it's kind of gas units running. Then we added solar, wind, those techs got better and we start to add them into the system and then things like battery storage came along, battery storage being much cheaper and and sort of cheaper every single year and all of a sudden lots of developers wanted to put solar wind batteries onto the system and instead of having a system that had a queue of a hundred or two hundred gigawatts, we had a queue that maybe got some nine hundred?

Was it I've got here in my notes they went to one thousand and forty seven gigawatts.

One thousand and forty seven gigawatt. Okay. That's an incredible number and all of a sudden we had way more in these queues than we ever will need and so something had to happen to essentially bring that queue down and streamline it. So enter connections reform. What happens next?

Yeah. Absolutely. So I think just to make the distinction that there's been a situation where it's been really easy to get hold of grid offers at the transmission network level. So developers were able to get hold of many, many gigawatts of grid connection capacity without having really anything about their project developed.

No land, no planning permission, no financing or anything. And that was a real loophole in the system. The the distribution networks did have a system where you had milestones and you had sort of you had to have at least interest from landowners before you could get a grid offer. That didn't exist at the transmission level.

And then when, as we've seen, the cost of solar and batteries in particular coming down, those developers have been targeting the transmission level and really have just overwhelmed the queue. Back in twenty twenty three, NISO or its its predecessor as the system operator did try implementing some milestone new milestone management that was meant to kick projects out of the queue if they didn't move quickly.

That was called c m p three seven six Oh, that's so sad.

Which unfortunately ended up being far too weak, and we were talking about it at the time before the decision that the Ofgem, we didn't think it approved a strong enough option in terms of the milestones and kind of so as proven, and we then gone into the NISO program of Connections Reform sort of full fat, and it's much more powerful than the the milestone management system. The key concept within Connections Reform is that there's now gonna be effectively two tiers of grid offers. There's gonna be a concept of a gate two grid offer, which is sort of a real grid offer of a project that is prioritized for delivery. And then there's this concept of gate one grid offers, which are technically grid offers but don't really confer any benefits. They don't provide the right to connect to the network in any location or at any date. And so effectively, those projects are cleared out.

And then we're left with these projects in gate two, which NISO calls the delivery pipeline.

Okay. So we have gate two and and in that sort of gate two, you're supposed to be getting offers. You sit as a developer, so what is the status? So right now it's twenty first of January, what's the status right now in terms of have you got offers, when are you expecting them?

Yeah. So where we are in this process is that what we've had is the gate to notifications. Okay. And those came in December twenty twenty five. And those effectively tell you whether or not you will be getting a gate to offer.

So we now know which of our projects are in the new queue or in the new delivery pipeline and we know which ones have been kicked out or kicked into gate one which is sort of effectively kicked out.

But you still don't know let's say you've got something connecting this year or end of this year, you still don't know if that's gonna get a connection offer?

We know that we will get a connection offer, but we don't know what the terms and conditions will be. So that's the real key distinction here is that you have this this multi step process where you've now had the the notifications which says you're in or you're out. But for the projects that are in, we haven't actually seen the terms and conditions. And that might mean when you can connect, how much it will cost, where you can connect, and also other key items like whether or not you will suffer curtailment where you're switched switched off or turned down Yeah. Often without compensation.

So I'm little bit sort of scratching my head here because if if I'm a developer, right, I have to juggle both the connection but I also have to get someone on-site to build the the solar site or the battery whatever it is.

I have to manage the supply chain, I have to tell my financiers, okay you're gonna get some money for this, there's gonna be some revenue from this site but if I don't know the stuff on the connection side, how can I actually like progress the projects through here, I'm stuck?

I think it's I think it's really difficult. I think the reality is there were certain projects that before connections are formed had taken a final investment decision and were then being built and those projects have effectively just continued.

And the implicit and in some ways explicit promise from NISO and the network companies is that those those projects won't be adversely affected by this process. But then there's the whole next tranche of projects that that haven't taken a final investment decision.

And for those, it's been really difficult and a lot of those have really struggled to hit final investment decision.

What Neso tried to do is to say that those projects would qualify for certain levels of protections in their language, which is a sort of partial grandfathering. So full grandfathering would say, we, NISO, and we, the network companies, guarantee that the terms and conditions of your grid offer will not change, and therefore, developers could continue to move forwards. But Neso, I don't think, felt able to make that commitment. So what they said is we will offer you protection And for the highest form of protection is projects connecting in twenty six and twenty seven, twenty twenty six and twenty seven, so this year and next year.

And for those projects, the the commitment given under those protection clauses was that we won't change where you connect And we will not change your connection date brackets unless we have to.

So, unfortunately, what's happened is that there are a lot of projects that that I've been hearing about recently that are due for connection in twenty twenty six and twenty twenty seven that have now been informed that despite the guarantee on the connection date or the protection of the connection date, it was not a guarantee. And those connection dates in some cases have been moved back twelve months, fifteen months, or eighteen months. And I think that is the that is the real problem for developers is when you have delays after you've taken your final investment decision. So you have a situation where you have built your project in many cases, you spent all of the money And you can get none of the revenue.

Yeah. And when developers see that happen, it makes them really nervous about them taking a final investment decision on future projects. Yes. They're gonna either apply a higher cost of capital, so demand a higher return, which could lead to higher CFD prices, higher capacity market prices, and ultimately higher energy bills.

Or alternatively, developers will just delay, and they will wait until they get this gate to offer. And potentially even after that, maybe we can come on to it, but but the gate to offer isn't even necessarily the end of the story of fully derisking the connection.

Okay. A couple of terms, let's just make sure people are familiar with. So this is your first time hearing about development of solar projects in the UK. You've got something like final investment decision.

This is essentially when a company gets to the point of no return. Right? Once you get past the final investment decision, you're gonna put the money and you're gonna build the thing. There is no going back.

Then you've also got grandfathering which you mentioned, which is essentially a concept where you're saying that the rules that existed before you're gonna carry over into the rules that that exist after the decision even if those rules change. So you're gonna try and make make people, let's say, they had a whole pie before the decision was made, they're gonna have that same whole pie afterwards. That would be an example of grandfathering.

Yes. So I think if if for the connection day, know, the full grandfathering would have said, you're due to connect on the first of June twenty twenty six And we, NISO, would grandfather that connection date and guarantee it. And if there's a delay, we would then compensate you. But that that's just unfortunately not how the contracts work. The contracts really don't give developers very much recourse whatsoever if there are delays.

And I think what we've seen is that there seem to have been a, you know, notable number of projects that have been told about delays really quite late in the day, and that's really problematic for those developers.

And and it's a really a signal to other developers to really be wary and to ensure that you derisk the project as much as possible before you reach your your final investment decision.

Yeah. And let's let's talk about two things in there. So one, which is this concept of no recourse. Right? So if you are if you're applying to have a connection and you get bumped back twelve months, if that happened to you when you were ordering a new pairs of a new pair of shoes online or something and it came twelve months late, you kinda go well, like, I either want my money back or I'm just gonna send it back to you. In the world of getting group connections, do you get that money back?

No, basically. So there's there's very little recourse available to developers if there are delays caused by the network companies and Niso, even in the event where it's it's an error on behalf of the network company. Okay. And so I think this is something that Ofgem is looking at through what they call the end to end review.

It has a much longer title. Yeah. But it's the end to end review basically of the connections process and the the the rules and the the incentives and penalties on the network companies. And that is looking at introducing carrots and sticks for network companies.

So extra incentives if they connect people early and penalties if they connect projects late. I think that's important, but I think it's gonna be quite a while before that comes into effect. I think the the question for me really that I'd like to to hear Ofgem answer is why at the moment do they feel unable to sort of hold networks to account through the license conditions that already exist? So Ofgem is the the energy regulator.

They regulate the network companies. Some of the network companies are performing incredibly well. We've we've energized a huge amount of projects this year and last year or twenty five and and twenty four, and some networks have been consistently very, very reliable.

There are other networks where the performance has been less good for us, but also we're aware and kind of everyone in the industry is aware that there are other network companies where there are problems across the board and and just too high an instance of that.

And, you know, Ofgem's doing this longer term review of incentives on the network companies. But I think the real question we have to ask is why do they currently feel unable to to take action against the network companies through the license conditions that they already have? Okay. And that and, again, that goes back to the impact on developers.

Right? So because developers know that certain network companies have had problems, those developers will hold back on investment in those areas until they get more certainty. And that means doing more design work, doing more survey work, waiting for a program that that, you know, may may never be forthcoming. And that really holds projects up and will really, you know, ultimately will harm the the government in achieving its targets.

Okay. It feels like two parts to that. So one thing I would like to ask you is around we've got mission control, like we've got this group within government that is required to sort of step in and get stuff done.

Is this something that they need to move to? So beyond kind of the early stages of looking at sort of what the plan looked like on Clean Power two thousand thirty, what that plan looked like, do they now need to go, okay, we're now moving into the execution phase, which means networks. It means grid connections happening on time as investors would inspect. Do do you think that's kind of top of Chris Stark's list?

Well, I I hope it is. So what we've seen, we've we've really move we're now moving phases really Connections Reform. The the first phase of Connections Reform has been about setting targets for which projects should be prioritized in different areas and then effectively capping what is then in the grid queue in different areas. So capping the amount of batteries in a particular area, capping the amount of solar.

Yeah. That that's now happened. We now have what Niso calls the delivery pipeline. I understand that in the Mission Control Office in the government, is run run by Chris Stark, I understand there's a list of projects on a board, and those projects are there being, you know, earmarked for delivery by twenty thirty.

And I think what we really need now is we need the government to kinda play that coordinating role and and bring that pressure onto any organization that that might be blocking things. And, you know, all these network companies and and also, like, local authorities, local planning authorities, they all have different priorities, and it may well be that there's just one thing that delays projects. For a while Yeah. It was amendments to overhead lines.

You had to get consent from the secretary of state on something called a section thirty seven.

And that section thirty seven consent was taking maybe twelve months or more. And then it really came down. I think this was under the under the last government, and that process is now really moving quickly, that's allowing projects to get connected. Yep.

You know, we have all this work to kind of clear out the grid queue, help that move quickly, but, ultimately, it's a game of whack a mole.

It's all about what's on the critical path of the project. And as we've addressed some of these issues, there are other things that are popping up on the critical path. So for example, it might be getting a a highways agreement with the local planning authority or the local council in order to build the entry from the road into the site. That might end up being the thing that delays the project, or it might be that there are excessive amounts of archaeological trenching required to do ex explorations, which again delays projects, or it might be that actually the network companies could now become the blocker.

I think that's something we're really conscious of is that this process has been very heavily delayed, and and a lot of the focus has been on NISO. And I think rightly so because ultimately, NISO are are the ones who've been controlling this phase of the process. But now we're into the phase where offers are being made and then projects have to be delivered. And both of those really rely on the network companies.

It relies on the network companies to deliver high quality grid offers in the timelines that have been agreed as an industry, and it then requires network companies to deliver the reinforcement required to connect projects to the grid.

Okay. So for anyone with section thirty seven on their bingo card, can you can now tick that off. We've we've covered it. I think the question for me that comes next, I think something you sort of touched on a little bit earlier right? So if I'm someone on the street, I go about my job, I don't really care about energy but I do care about my bills and you've come on to talk about what's going, what's what's hard like what's really under the bonnet of of development.

But I don't really care. Right? You're you're just you're just telling me problems that your company has. So so why why should the person on the street care that that these problems exist?

So I've I've probably got two main hobby horses and I could probably relate both of those to to bay basically directly to energy bills and also community impact. So I think the first one is we're we're very conscious that a number of projects now can only be connected to the grid if there is a new substation built. So effectively, you have existing overhead overhead power lines that people will see as they go around the country, and then there'll be projects that are looking to connect into those. And the only way they can connect is if the new substation if the location of that is confirmed and then the substation is built. And and what's happening at the moment is this is really a problem in England and Wales, and it's the responsibility of National Grid Electricity Transmission on NGET. And what needs to happen is that National Grid needs to confirm the locations of those substations in a timely manner to allow developers to submit their projects into planning.

If you don't know where the where the substation is gonna be, where the connection is gonna be, you're unable to prepare your planning application, or you have to scope an extremely wide area. So this substation could be anywhere five kilometers either way or ten kilometers either way. That then gets to the why should people care because it then has a community impact because you might have two or three large developments coming out and saying all of us are potentially gonna bring cables through these whole swathes of countryside and it's because we can't get the location of the substation confirmed early.

Okay. And so that's a real key issue for for community impact. Point one community impact? Well, point one substation siting, which has community impact, but it also then has delays.

Because if we can't get the location of the substation confirmed, we can't prepare and submit our planning application, and then ultimately, the government is doing a lot of great work on planning. They've really got the the national infrastructure process motoring, and they've got further reforms to keep it motoring even further. But ultimately, we can't get projects into planning until things like substation locations are confirmed, and that puts at risk the government's targets to, you know, grant planning permission to I think it's a hundred and fifty nationally significant infrastructure projects by the end of the parliament.

And so so why does why does risk matter for you? Right? If you get bumped back in your you get delays coming through, you're not sure where to put where substations will be, when you're then going into things like bidding for contracts for difference, so you're you're then bidding to set the price where you're gonna provide energy to UK consumers, like why does risk matter in that process?

So yeah, risk absolutely matters in that process. So let's say there's a connection date that's highly uncertain or there's a risk of delay after we've taken our final investment decision, then we might need a higher revenue in order to justify that risk, and that has a direct impact on energy bills. I think with the example of the siting of new substations, we just can't even get to the point where we can bid for a CFD because in order to have be able to be eligible for a contracts for difference contract, you need to have already secured your planning commission. And so the impact there is that those contracts of different sorts become less competitive and again that drives up bills.

Yeah. It just it feels like so much of this transition is now down to like really good execution.

The the countries that can do this best, the countries that can get people connected, do it on time, attract investors with low risk will sort of come out on top and those that are clogging up their system running two years, three years behind, they're gonna be the ones that find actually the cost to consumer is not what they were hoping it was gonna I think that's certainly true.

And I but I think the work now is actually it's it's really in the detail. It's it is is not, you know, this is not the sexy work. This is not the setting the strategic plan for the country.

This is what is the nuts and bolts look like of deciding how many substations we're gonna have and where they're gonna go. And just to give another very simple example, so we've seen in the the the gate two results that a lot of solar farms and a lot of wind farms, they want to have batteries alongside them, and they've all had the batteries removed. There's there's kind of reasons for that, but there's lots of solar farms. Basically, the results we've ended up is with solar only projects, wind only projects, and battery only projects.

We effectively ended up with very few colocated projects, and this could have an impact on bills in the billions or tens of billions. The reason for that being that when you have all of these projects just with a single technology, it means they all need a bay in the substation, like a plug socket. Think of a substation as a big sort of multi block, four block adapter. There aren't enough plug sockets to have all of these projects having their own one.

That means we need more substations, which is more cost. That means each individual projects is more costly because they can't share the grid connection costs between two or three technologies. And and that's just something that really hasn't been scrutinized throughout this process and is the kind of thing that we now need to look at really urgently in order to give us the best chance of delivering targets but also keeping bills affordable.

Yeah. And it just makes so much sense. Right? And that whole piece around we've picked solar, we've picked wind, we've picked say gas sites, but we're like whatever it might be.

It does feel like that whole process has been sort of single technology selection, which is gonna result in lots of grid connections and and sort of a hard process of trying to deliver all of that. But a key point from when you were last on was around actually can we just run this whole system much hotter? Can we look to bring batteries onto solar sites? Because you know what batteries don't want to generate when the solar is generating, that's how market prices work.

They want to generate when the sun goes down and that means we can get two uses out of that one cable. And when we're having to do these sort of billion pound programs to upgrade networks, shouldn't this be like top of the list of the things that we're doing?

Well, I think it should be now. So so we were really disappointed that this issue we don't think was fully explored within within Connections form. It might just be worth stepping back and kind of like, how has this happened? Basically, it's happened because projects were prioritized based on whether or not they had planning permission.

That was, like, the first the first prioritization. And it turns out there are lots of sites that just have a battery that have planning permission. The sites are relatively small, they're relatively easy to secure planning permission for, so the battery cap in the connections form is basically just filled up with batteries that have planning permission. Separately, you have solar farms and wind farms that have batteries on them in terms of the proposal, but they don't have planning permission necessarily because it takes a lot longer to get planning permission for a big solar farm or a big wind farm. So there are a lot of solar and wind projects that are that are in the new queue, but they don't have planning permission. And the outcome of that is that the battery also didn't have planning permission, so it's been stripped away.

So we and others highlighted during the reform process. Look. This is a likely outcome that we are gonna end up with a huge number of batteries that are battery only and a huge number of solar and wind that that don't have battery on. And this is just gonna lead to higher energy bills. I mean, some of the costs of these new substations are hundred million, two hundred million, and that cost is then gonna flow through to consumer bills.

I think this now has to be looked at again. We were told, well, this will be looked at in the strategic spatial energy plan, this this issue of colocation, and and that will then maybe set some new caps and allow batteries to be readded.

I think there are two two issues with that. One, this this strategic spatial energy plan has been significantly delayed. And so even if this issue is addressed in the the strategic plan, it's it's kind of too late. And the second issue is that the strategic spatial energy plan will not actually model this issue that I'm talking about around the remaining plug sockets at the substations. It's not gonna actually model the network in that level of granularity. So it won't answer the question probably, and even if it does, will be too late. So we we definitely think this is an issue that needs to be reopened.

And we're talking about billions of pounds of consumer impact here. And also speed, if we have to deliver all of these new substations in order to get the battery and the solar, that is gonna cost a hell of a lot more money and take a hell of a lot more time. If we can have more colocated sites able to compete, then you get more bang for your buck in terms of all of the supply chain, all of the kit that you're building, and that just means we'll get more in the system quicker and cheaper.

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So you've just been talking around SSCP, strategic spatial energy plan, and I think it's useful to tie this all together for for viewers, right? So we have talked about the connections reform process and gate two, which is kind of this plan of what they want to build next and then the next thing is this SSEP, so the strategic spatial energy plan, which is kind of our next review of all of this. I just want to bring us back to that gate two process because I think people will be really interested in kind of like what is actually happening next, like what are we actually building, who are the winners, who are the losers.

Yeah. So so maybe just close off there on the the point around the strategic spatial energy plan. So what we've got now is we've now got a new permanent process where there are gonna be these application windows for projects to get into gate two, the the real queue, or or to be then still stuck in gate one, I e, not not really in the queue. The government and NISO have now set the targets or the caps. They're gonna be used out to twenty thirty five, and that's what's been come through in the results now. So we now have this what NISO calls the delivery pipeline to twenty thirty five.

And then we're gonna have in a few years' time, we're gonna have what's called the strategic spatial energy plan, and that will look out basically for the period from around twenty thirty to twenty fifty. So there could be some revision of the the the caps or the targets that have been used out to twenty thirty five, and then there'll also be potentially new caps that come in or new targets that come in for the for the for the later periods. And I would have thought probably initially out to twenty forty, and then in a few years' time, grid offers be made out to twenty forty five and so on.

In terms of results in this time, so I've actually had to prepare a a spreadsheet because it is is so complicated.

I love a prop making a making a debut.

I think I think at a high level, there are only four technologies that people need to think about when interpreting the gate two results.

And those are offshore wind, battery storage, onshore wind, and solar. So you have other technologies like interconnectors where effectively almost all of the projects have been taken forward into gate two. You have projects such as gas fired power stations where, again, projects have basically all been taken forward, the advanced projects, and there's a separate process that NESA will be going through to to bring additional gas projects into the grid queue if that's needed. And then you have projects like demand, which again have not really been impacted because there hasn't been this cap or target set on how much new demand projects like data centers or steel factories Can be connected.

And we we can we can come back to Put a put a pin in that.

We'll come back that.

We can come back to the pros and cons to that. But I think people should really think about those four technologies, and if I just take them each in turn. So for offshore wind, effectively, what's happened is that every project that has a seabed lease with the Crown Estate or Crown Estate Scotland has effectively been included within the gate two queue. So effectively any any offshore wind that that has agreed to lease some seabed, that will be taken forward.

A hundred percent of that, basically nothing has been kicked out.

And that's quite interesting, right, because we just had the AR seven results, the allocation round seven, which is essentially where people with offshore wind projects are either selected or not selected. And within that process, some were selected and some weren't selected. So it'd be quite interesting to see like how the the ones that weren't selected, like how that works with them being progressed in in gate two.

And I believe one of the projects has already been announced as abandoned since the the CFD results came out. So one of the one of the unsuccessful projects, I think, in the Irish Sea has been announced as being abandoned. There was a a floating offshore wind farm in Scotland that was also recently announced as as as being abandoned and and the the lease handed back to to the the Crown Estate or Crown Estate Scotland. So you're really seeing this concept of attrition coming in already within offshore wind.

Which is where somebody says, I don't wanna progress. Right? That's that's attrition.

Yeah. Exactly. And and actually, the the key point that I was making last time and I've kind of been banging on about for the last two years is the government has set targets for how much of certain technology it wants to see deployed, and then NESA has effectively taken those targets and used them as caps in the grid queue without sort of inflating them for the fact that some projects will fall away and some projects are just uneconomic and shouldn't receive a CFD Yeah. Or some projects just shouldn't receive planning permission and so there should be some projects that fall away.

And so now they need to think about this problem and perhaps reallocate some of that capacity or think about how they can perhaps recover some of those wind projects, that type of thing.

Well well, I I I think so. And and, you know, I think one thing that could happen is that NISO could raise the caps to be higher than the targets in in the interim sort of grid grid gate to application windows that happen between now and the strategic spatial energy plan. That's something we could look at. So a little bit of course correction? Yeah. Potentially. And just just to kind of, you know, not not try and be too precise about what it is that we're gonna be bringing forward.

So that that's the key trade off really is Okay.

Certainty for the network companies versus competition between different projects. I think what you could also see is some of the offshore capacity reallocated to onshore wind.

So maybe we'll come into onshore wind.

Segue.

Yeah. So so offshore wind effectively every project that is sort of in any way real and has a has a lease is being taken forward. Onshore wind completely different. So there has been thirteen point four gigawatts of onshore wind that at least had its land secured that has been kicked out of the queue into gate one.

Okay.

And I we think, we estimate that that between six and eight gigawatts of that has already submitted planning applications, and one hundred percent of that is in Scotland that's been kicked out. So we've got on the one hand some really not very well advanced offshore wind farms, particular floating offshore wind farms that are really currently very expensive, they're being prioritised and onshore wind farms in Scotland, in the same regions, there's a lot of offshore wind in Scotland as well, but onshore wind farms in the same region that are more advanced, likely to be cheaper, and likely to be able to deliver quicker have been removed from the grid queue.

Yeah. It feels like not very sort of when you say more expensive, I'll just put a number on that. I think it's something like three times more expensive versus like regular offshore wind for floating. What's the systems thinking that's happening here?

Like why why are we doing that?

It is a bit hard to understand, to be honest. I mean, I think the the caps or targets in the in the first grid reform window were were developed at pace and they used numbers that basically already existed, which were the future energy scenarios that that that are prepared by NISO, which is sort of an annual scenario planning exercise that they undertake.

Those scenarios were never really intended to answer the question about the relative competitiveness of onshore wind and floating offshore wind and and where the balance of risk should lie and how Because because the market will pick that up.

Right?

Well, it it would, but now now it can't because the caps have then been set in in such a way that as I say all of the offshore wind is effectively in and large amounts of onshore wind has been been removed from the queue. I I do think that's something that will have to be looked at again, particularly if we see well, particularly given that we've seen offshore wind farms being announced as being put on hold or abandoned already.

Okay. Makes sense. So look again at the onshore caps and potentially bring through a few more of those projects.

Yes. Absolutely. So onshore wind in Scotland oversubscribed thirteen point four gigawatts kicked out, six to eight gigawatts of that probably had submitted planning. We haven't actually seen numbers from NESA yet on that.

In England, all of the onshore wind that had land rights secured has been taken through, and there's also still headroom for additional five gigawatts Okay.

Of onshore wind in England to come in through future windows. And the reason why there's separate caps for England and Scotland is, as I'm sure as many viewers are aware, is because of the the grid constraints between Scotland and England.

And so, you know, more desire to have more onshore wind in England.

Okay. Makes sense. So we've done two two of the four?

Oh, we've two of the four. The next is batteries.

So for the batteries, there was a target slash cap for twenty nine gigawatts of batteries by twenty thirty five.

And what's happened is basically anything that had planning permission, any batteries that had planning permission were guaranteed a place in gate two, and that's ended up being about ninety one gigawatts.

So twenty nine gigawatt cut target slash cap and ninety one gigawatts has got through and that's because because it had planning permission, it could basically, you know, bust through the And that's that's crazy.

Right? They were like, we would like I I I know we don't need ninety gigawatts of battery size. So so how does that all wash out?

Well, I think yeah. And then you could rightly say, Ed, you know, you could say to me, well, Ed, why are you then saying that we need to add batteries to your solar farms again when we've already got way too many batteries? And I think that that is actually you know, that's the debate we need to have. There are huge amount of batteries.

I'm I'm not sure many people think we're gonna have ninety one gigawatts of batteries on the energy system, the electricity system by twenty thirty five. But what we now need to see happen is projects being in a position where they are allowed to connect and they have to go and secure financing. And then we will see how many are able to secure financing, and those that don't should then be removed from the queue. Yeah.

And if if what we see is that across the board, batteries can't get financed, then all of the batteries will fall away. We might see that there are good projects and bad projects. There might be projects that have really cheap grid connection costs. Those might go forward.

And the projects with high grid connection costs don't go forward. We might see that projects that are colocated, so on a solar site, have fundamentally better economics because they can share the grid connection cost, so those go forward. Yeah. And actually, I think that's you know, that creates uncertainty for the networks because they don't know that projects are gonna go forward.

But on the other hand, it potentially leads to better outcomes for for bill payers because only the most competitive schemes will go forward.

And this feels a little bit like the old fashioned way, right, of of people getting positions in a queue and then there being like a market process to select those that actually investors want to put their money behind.

Yeah. And look, I think it's difficult because it does still create massive uncertainty for the network companies. They've got this ninety one gigawatts of batteries that they effectively have to plan for and they are obliged to offer them grid connection offers, and they are obliged to ensure that there are enough plug sockets available at existing substations or at new substations. And so that's a real problem.

Yeah.

Adding batteries onto solar farms and wind farms again, I don't think makes that problem particularly any worse because, you know, the plug sockets are already allocated for the solar farm or the wind farm. And and that that real constraint is around substation space.

What we need to see is these batteries that that have got through, we need to see them being really quite quickly told right now. Now you've got all the details you need, finance the project or get out the queue. And if you get out the queue, means we free up a plug socket, a bay for another project or maybe it means we don't need to build this new substation.

Yeah. Okay. We've missed one.

Solar. We missed solar, which is my day job. So we should probably probably mention that. So on the solar side, the cap was sixty nine gigawatts and that's basically what's gone through. So all effectively, it was oversubscribed and thirty six gigawatts of projects that that did have land have been kicked out of the queue.

So, effectively, there was a hundred gigawatts ready to go

That had all of its land secured, and about a third of that has been has been kicked out of the queue, and the other two thirds is now in this priority delivery pipeline.

What's your feeling on that number on sixty gigs? Do you think that's incredibly ambitious and that's probably all the solar will ever need much like the ninety gigs for batteries? Or do you think that actually that's a number that we might move upwards as time goes on?

I mean, I think it's it's an ambitious target to have nearly seventy gigawatts of solar connected to the grid. This doesn't even include rooftop solar By twenty thirty five. But the reality is there are a lot of projects being brought forward. There are lot of projects that are getting planning permission.

And actually, if you have battery storage on your solar, you know, there is a way to really push that solar that solar market share really, really quite high. I mean, if you get to of seventy gigawatts, that's probably about twenty percent of UK electricity supply. So that is pretty significant. And it would require those solar farms to have batteries installed on them to sort of soak up the power in the day during the summer, particularly when it's sunny and windy Yes.

And then discharge that power in the evenings.

I think that's the really big problem, right, is that if we build something like sixty gigs and we have a strong wind period and we have a strong solar period in the middle of summer, we don't have very much air conditioning load in in the UK and as the background to this episode you can definitely see it's it's raining raining and cloudy like we just don't have much air conditioning load so our peak load in summer is not huge and so there is this kind of challenge of as you say like using a battery to try and shift it or perhaps having more things like data centers on the system that could like bump up our demand in summer so that these solar sites are generating into demand?

Yes.

But in a way you know it is not the end of the world if you're throwing away one percent, two percent, five percent of your solar output, and actually that does then get priced into the contracts for different prices that the solar farms are offering. So nowadays when there's negative electricity prices, those guaranteed fixed price contracts under the CFD, they they don't apply. Yeah. So effectively, the solar would would potentially switch off during periods of negative prices.

So so long as solar is still offering competitive prices in the CFD auctions, which I expect we will see in the allocation round seven results that are due any day now, those solar farm operators are pricing in their expectation of of periods where they'll have to switch off. Yeah. Again, if you allow them to install batteries, they might be able to bid at a lower price. Both because that battery has revenue, that battery offers a hedge against periods of curtailment.

So it's another reason why we need to we need to resolve this issue of the of the batteries being removed from from so many solar projects cross country.

And I think that point is a really good one, we get that question a lot which is how are people actually building solar projects when there are negative prices that exist and the answer is that a solar project doesn't care about a single half hour period right, It's looking over fifteen years and looking over the prices over all of fifteen years and for every period there's a negative price in the middle of summer, there might be a price in August or February where the price is reasonable and the solar asset is generating into demand and it is very much needed and so when you sum up all of those half hours over the fifteen year, forty year period, you get to a point where you can say, okay, this is worth doing and I as an investor want to commit to it.

It's nice to kind of be able to say that here because I think that question gets asked a lot when people listen to transmission and and they kind of it up on YouTube comments and say, how does this work? It's it's nice to be able to articulate that fully.

Yeah. And I think it's it's worth thinking about on a portfolio level as well. Right? So if you just had solar, there might be a world in which we get many more negative prices than we have today.

And in that world, your your solar just you know, the fine the financial performance of your solar is less good because you're you're having to switch off during these periods of negative prices. There might be a world where there are very few negative prices, and in and in that world, you perform well. If you then have a battery in your portfolio as well, you have more of a balanced portfolio. So in the world of lots of negative prices, that's bad for the solar, but it's good for the battery because the battery gets paid to charge and and, you know, then generates more revenue.

And on the flip side, if if the solar is doing well, the battery will probably be doing less well because there'd be less volatility. And so allowing people to build those portfolios, I think is really important and it's certainly something that that all developers and independent power producers are thinking about as they build their portfolios.

Totally agree. Totally agree. Let's move out of the world of forty years of half hourly pricing and let's go back to your your day job. So when you're wrapped up with this episode, what's what's next? What's on what's on the to do list for you?

So the the key thing for us is still connections reform and really it's about the the gate to offers. So just to to wind back, we've had the gate to notifications. We now know which projects are going to be in the new queue, but we don't yet have the the gate to offers, and that's where the terms and conditions of the offers come from. So we have projects that are very well advanced that are sort of ready to build, and in those, we're sort of doing the final derisking, waiting for that grid off to land, then hopefully having a a conversation with the network company.

We're not expecting anything to have changed, and then we will move those projects into delivery. We also have projects that are that are further out where we haven't yet submitted planning, for example, or they're in the planning process. And a lot of those, the way the timelines work is that we're not gonna get the grid offers until June this year or September this year or potentially even later for projects connecting to the distribution networks. And for those projects in particular, we can't be waiting until June or September to find out the details from the network company.

We need to be having discussions with the network companies now, organizations like NGET, National Grid Transmission, and NISO to see, you know, what what are what is it likely to be the key details? Is it likely that there is gonna be space within this substation? Are there enough plug sockets for us to connect into? If we reduce the capacity by ten percent, would that change it?

If we connected at a different voltage level, would that would that mean that there's capacity? We we need to have those discussions now because that then means that we can move forward our projects between now and the end of the year, which is then very important for getting projects into the planning system in a timely manner next year and staying on track for delivery around around twenty thirty. I should say that also applies you know, I mentioned substation siting earlier, the siting of new substations in particular by NGET. That's a really key issue that's coming up now.

If any of you have ChatGPT or you wanna go on the on the planning inspector at website, you can you can look at what the key issues that are coming up in the planning process for solar farms. And there are really quite a large number of them where where one of the key remaining issues is where the substation is going to go or where the extension to the substation is going to go and what that means for the cable route and and the land to that project needs. We're already seeing that in the public domain. There is a lot more underneath the surface of projects that aren't yet in the public domain or aren't yet in the planning system that have similar issues where they don't know where the substation's going to be.

And we really need to see a commitment from from NGET. Now that we know which projects are in the queue, we need to see a commitment from them to very quickly say, these are the new substations we're going to build Yeah. And this is the process we're gonna go through to narrow down the locations and finalize them on a time that works for developers.

You know, the first episode we did, we ended up talking about substations in the contrarian view. Here we are at the end of the second episode, we're back on substations, maybe we should just talk about substations more. Let's let's go into a contrarian view. So in your in your first contrarian view, you talked about whether we need all these substations. Now coming back to you again for a second contrarian view, do you sort of stand by that first that first view or would you like to provide a second?

Absolutely. So I think I kind of took quite a long way to get there, but to boil it down, I was I was basically saying that I think there is still a lot of low hanging fruit in terms of using the existing network better. And we talked about things around how the distribution networks are operated. We talked today about colocation being a way that you can use the existing network better and minimize the amount of new build. There is still some new build that is required quite a lot. What I'm really getting at today is that where that new build is required, we need to get certainty as quickly as possible because otherwise that becomes the new critical path. And even though we've been through grid connections reform, grid connections in general could still be the things that are delaying projects.

Ed, thank you for coming on again, you've been a wonderful guest. I'm sure we'll have you on a third time at some point soon.

Thanks very much Ed.